In Part One I suggested that not only are the 1% well aware of this but that while they have been telling us how we must ‘save’ the present system and assuring us that any radical break with the policies of the past will result in catastrophe, they have in fact been working hard to engineer very radical changes.  We have all seen the decline in living standards and are all acutely aware of the changes which directly effect us. But I wonder if  the true significance of the changes, when taken together, has largely gone unnoticed? Certainly the Over Class has not made clear their real intentions. Why would they?  I believe the 1% know that to protect their wealth and power next time will require radical political dismantling of what is left of our democracy.  Necessarily much of what follows is speculative. But the speculation is, I think, rooted in and extrapolated from what we can already see happening today.

Some things about the present system must be maintained, others expanded and some new ones added. Taken together the changes, I think, amount to the beginnings of a Manifesto for the 1%. So here are some of the things, I think, our global Over Class would like to achieve and how they intend to achieve them.

As I have been writing this article it has grown, each section getting longer. I’m afraid I sometimes find it difficult to know where the sweet point is between, on the one hand – being too dense, and on the other – over explaining. So here is a outline of the sections so that you can see where I’m going and skip the sections that seem obvious.

Outline.

1) The Over Class must retain and consolidate their control over the global system of debt.

2) The power to regulate must be taken from nations and effectively controlled by corporations.

3) Professionalize governance. Democracy can be and must be neutered, and an effective way of doing this is to insist that amateur, elected officials MUST take the advice of professional (read corporate) advisors. Expand current law to enforce this.

4) The financial system badly needs un-encumbered ‘assets’ to feed the debt issuing system. A new way must be found to prise sovereign assets from public ownership. Such a new way is suggested.

5) In order to facilitate the political changes necessary, the public mind-set must be changed. National Treasures such as the NHS in Britain must be re-branded as evil State Monopolies.

6) Effective ways must be found to convince people that democratic rule is no longer sufficient to protect them.

7) An alternative to Democracy must be introduced and praised. That alternative must be the Rule of International Law as written and controlled by the lawyers of the 1%. People must be told that this is all that stands between them and an increasingly hostile and anarchic world. But that it can only keep them safe if it has absolute authority over democracy. People must voluntarily bow to it out of fear and its decisions must be as absolute and unquestionable.

In conclusion, I suggest that this amounts to a dystopian version of the old environmentalist idea of Spaceship Earth. A corporate version where we are just passengers who must pay our passage in a ship someone else owns. No longer inhabitants or citizens with the same inalienable right to be there and be heard as anyone else. 

And yet, dark as all this may seem, victory for the 1% depends on no one understanding what is happening. If we are already beginning to see the outlines of what the Over Class wants, then their victory is not assured. If our ignorance is their bliss, then our understanding is like sunlight on a vampire’s skin.

All is not lost, not by a bloody long way.

Towards a Manifesto for the supremacy of the 1%

1) Control of debt.

The 1%, through their ownership of the private banking system, must continue to issue and handle the majority of debt and have legal control over the payment of those debts. Power over the system of debt is critical to the 1% and one thing is paramount – there must be no democratic, nor public, control of it. That old saying, “give me control over a nation’s currency…” should now read, give me control over a nation’s debt. Debt trumps currency. Which in turn means the 1% must maintain custodial power over the money used to pay those debts.

At the moment, the largest custodial banks are those on Wall Street. Which means any dispute over what happens to that money gets settled in the Southern District Court of Manhattan. And that court has consistently interpreted international law in ways that have elevated the rights of private banks and bond holders over the rights of nations and entire peoples.  Two recent decisions in the US Supreme Court, which upheld the Southern District rulings regarding the Vulture funds Elliott Associates, NML Capital and others, forced the Wall Street custodial banks holding Argentina’s money, not only to freeze all payments but also to reveal all confidential information regarding Argentina’s assets. It is no exaggeration to say that these rulings favoured the Vulture Capitalists so decisively that it has changed the balance of power between private bond holders and entire peoples, in favour of the former. Even the UN wrote that the rulings were so sweeping that they,

…set legal precedents which could have profound consequences for the international financial system…

and which,

… will erode sovereign immunity.

Such is the power that the present arrangements give to the global 1% and their banks, that no group of emerging nations must be allowed to create rival custodial banks under a different court. Such would not only rival the mighty custodians of Wall Street but would stop the trend of enforcing US corporate law as de facto global law. If ever sovereign nations did not fund themselves by issuing debt, and if ever the 1% did not control where that debt and the ‘money’ to pay it was stored, and if ever the true sovereignty of nations was re-asserted against Vulture capitalism, then a great deal of the 1%’s power would evaporate. So none of that can be allowed to happen.

It is perhaps THE most important point of any for-profit, debt-based, currency or system (debt doesn’t HAVE to involve interest) that that debt must increase.  Not because it is a law of physics nor even that it benefits the 99% (largely it doesn’t) – it happens because it benefits the 1% to whom the interest is owed and more fundamentally because the entire value of the 1%’s debt-based, paper wealth depends upon there being a constant increase in debt. If debt didn’t increase then their wealth would become, first unstable, and then burn to ash. If that seems like I plucked this claim out of thin air I suggest that our present crisis and many others before it are the abundant proof. When the expansion of the global bubble of debt began to slow in 2007 it made the value of all the existing debt-based wealth first uncertain and then implode. Everything done since has been for the sole purpose of reflating the bubble of debt so that debt-based wealth could be said to have value. The 1% will never give up the power they currently enjoy to issue and control the inflation of debt, because their wealth would evaporate if they did.

2) Regulatory power.

One of the areas of power remaining to nations which act as an unwelcome hindrance to global corporate power is the power to regulate. This must be curbed and proposals are already on the table to do so. Such an effort is now enshrined in the multilateral trade agreements currently being agreed behind closed doors: the TPP, TTIP and the one which will remove finance from national control, TISA. These agreements all contain a new approach to regulation which we could summarize as “Our experts, Our data, Our regulations.” In a paper submited to the TTIP negotiations jointly by the US Chamber of Commerce and Businesseurope we find a proposal to adopt what they call “Regulatory Cooperation”. Which the paper says will,

“…put stakeholders [the corporations]  at the table with regulators to essentially co-write regulation.”  P. 4

The new philosophy, despite its coy claim to being about ‘cooperation’, puts corporations firmly in charge of setting the regulations for themselves and their products on the grounds that only they have the necessary experts, who have the necessary access to the data which is otherwise “confidential”. Or, to appropriate a phrase from the American revolution and use it for demanding more rights for corporations, “No Regulation without Consultation.”

The policy already being written in to the Trade Agreements and given specific teeth by their Investor State Dispute Settlement (ISDS) clauses, is not simply about who regulates what, it is the leading edge of a broad concern to remove any important decisions from democratic control.  The ISDS, in case you are not familiar with the jargon, is the clause first used in Bilateral Trade Agreements, now being incorporated into all Trade agreements, which gives corporations the right to take nations  to privately run arbitration at which they can sue the nations … and almost always win. And this, for me, is the key point. Disastrous as the Trade Agreements will be in and of themselves, they are a leading edge of this much more profound attack (see below) which I think we will see gathering pace in the next few years.

3) Neuter Democracy by Professionalizing Governance.

The Global   do not like democracy. In their less guarded comments this is beginning to show. Here is the EU Trade Commissioner, Karel De Gucht, quoted in a piece over at The Automatic Earth talking about the Scottish independence vote, 

 “A Europe driven by self-determination of peoples … is ungovernable … ”

One of the main ways the 1% can most effectively neuter democratic power (in a way that they can claim it is not their intent at all) – and the regulatory attack contained in the Trade Agreements is just one example –  is to advocate professionalizing governance. This has the advantage of sounding good on the surface. Who wouldn’t want professionals giving advice? In practice it will mean that although anyone can still be elected (that can be left in place) there will be a new insistence that they MUST – not ‘can’, but MUST, take the advice of professionals – corporate professionals. And as noted above a good step towards this has already been proposed for trade regulations in the corporate submissions to the TTIP negotiations.

The 1% and their media outlets will argue that Amateurism is no longer good enough. After all would you want an amateur heart surgeon, or an amateur nuclear engineer? No of course not. So why would you want amateurs to make decisions in any other sphere of governance? Elected officials are amateur. The experts whose ‘advice’  they, till now, “could” take, they from now on MUST take. And luckily there is precedence for this. Already when it comes to government ‘regulation’ of financial enterprises they use, retain, rely upon (you chose the phrase you like the sound of) the big 4 accountancy firms to do it for them. KPMG, not the government, inspects the books and signs to say that everything is tickety-boo and all the corporate bosses and their political friends then have to do is smile for the cameras. And it worked ‘really well’ in 2008 – in the sense that ‘The Regulator’ said whatever the 1% needed them to say at the time, until it was too late for anyone to do anything about it. That is precisely the kind of ‘regulation’ the overclass need going forwards.  Thereby, “No regulation without consultation” gets expanded to “No laws without consultation”. And of course that ISDS system of arbitration could be easily expanded to other spheres of government and used to stop any laws or changes to laws taken without or against ‘professional’ advice.

If any of this is put in place then it has the wonderful effect of leaving the politicians effectively powerless, but still in place so as to be the focus of blame. The 1% will hold the real power but the politicians will always take the blame. Any time things go wrong it will be because they made a mistake or did not follow advice as well or as fully as they should. Nothing will ever be the fault of the advice or the advisors.

As long as the 1% make sure the politicians are well taken care of after office, then there will be plenty of takers for the jobs. How utterly empty would the pantomime of our democracy be then?

So far this has been about taking from us. What about giving to them? Let’s not forget they have needs too.

4) From bail-out-cash to assets-for-pledging.

We all know banks would have died if it were not for the Trillions (yes, it is now counted in trillions) in public cash we have pumped in to them since 2007, to replace the flow of cash their brilliant loans should have been bringing in but of course weren’t and never will.  And that flow of public cash in to the private banks continues. Despite yet more empty lies about the banks being fine and fixed, as I said above we are not fixing them we are feeding them. The latest feeding will be when the  ECB gives them another third of a trillion in TLTRO (Targeted Long Term Refunding Operation) which replaces the sad, plain old LTRO of the last few years which gave the banks a trillion or so and was supposed (both times) to be the definitive fix. Of course since the LTRO ‘fixed’ things two major european banks still had the ungrateful effrontery to collapse – Banco Espirto Santo in Portugal and Monte dei Paschi bank in Italy. Right now all the other European, ‘not-in-need-of-any-help-being-perfectly-fixed and fine-thank-you-according-to-several-official-and-therefore-absolutely-trustworthy-stress-tests’ banks are lining up to take another third of a trillion. This, we are told will not only fix them…again…not that they need it, but will also encourage them to lend in to the ‘real’ economy. Which, oddly, we were assured the previous half dozen fixes were also going to do. But necessary as this sort of direct cash bail out still is, there is another pressing need which the bail-outs do not address. And that is the on-going but now rather accute need for assets which can be pledged as collateral for loans.

The reason assets are in many ways more important than cash is that although cash keeps imminent death at bay, assets, pledgeable ones, are the key to profit.

Banks want assets. The kind they are looking for are physical assets which produce wealth – like factories, or frackable land, or electricity grids, or ports, or telecoms systems. Assets that, unlike money, cannot be so easily withdrawn, tapered or ‘tightened’. The kind of assets  a nation might have, funnily enough. The banks don’t want these assets in order to use them to produce wealth directly, but rather to use them as collateral for creating more credit and debt. To think of the value of an asset in terms of the wealth or profit it can produce by its productive nature, is to be so very last century. It’s akin to thinking the value of a stock or share is to hold it and watch it go up in price. The real value of the stock or share is in trading it up and down as fast as possible. Let some slow-poke sit and just watch it. Similarly the value of an asset is vastly greater when thought of as the means for expanding the system of credit and debt. In the real world of making stuff, an asset like an electricity grid or a factory only makes the profit it makes. But in the world of credit and debt the same asset can be pledged over and over to create more and more credit. I pledge it to you and get a loan. You pledge it to someone else and you  get a loan. The system has grown twice. Have a factory and you get the profit it makes from its widgets. Use the title to that factory as collateral to get a loan or extend a loan (if you are a bank) and you and the rest of us in the system can use the same asset over and over. You can create a loan based on its collateral value. Or you could hypothecate your claim on the asset to another bank who can re-hypothecate the same asset and so on. And everyone else can write derivatives based on its value going up or down. Till we are all rich in paper credit and debt.

Of course we all know that if the music should ever stop, it’s the factory itself and the slow old boring profit it makes from selling widgets that survives while the paper turns to ash. Which would make you think that the smart people would play the credit and debt game for a little while but then cash out and buy up the real stuff before the music stopped. And that is, of course what they all tell themselves they will do. The problem is that as soon as you get out of the endless creation of paper debt and credit and buy real stuff you are in effect leaving the fast lane and driving back in the slow lane. Those who stay in the fast lane a little longer will do better that quarter and make you look like a loser. No one in the financial world can survive long as a loser. So there is a terrible pressure to stay in the fast lane just a little longer. Which means they all do. No one wants to be the first to lose his nerve and get out too soon. This is the nature of bubble growth. It is always better to stay playing the bubble. It is the nature of a bubble that even the smart players, who know it is a bubble, will want to hold and trade bubble assets rather than the boring, low growth real ones it is all ultimately based on.  And that is why they always, without fail, get caught holding them in the end. And then demand we bail them out. Which is how assets beget debts which beget the crash which beget the demand for a bail out so it can all start afresh.

The question is how to get your hands on those assets for a good price? The old fashioned way would be to invest wisely and buy it. The new way is to try to buy them at fire sale prices from a debt burdened or defaulting sovereign who you are ‘advising’ on how to cut its debt or pay its bonds by selling state assets. Of course the obstinate problem is that sometimes people don’t want their governments to sell off their nation’s treasures and assets. As long a some tattered shreds of democracy remain, this can hinder the process of looting.

At the moment nations can still default and force bond holders to accept a ‘hair cut’ – meaning a loss on their loan. This is always portrayed by our loyal media as some sort of crime against nature and an evil plot by crooked politicians. Despite the fact that when you lend money (and buying a bond is just that) you do so knowing you are taking a risk which is precisely why you are paid interest on your loan. So the risk of a loss is known and agreed at the start. And let’s remember most of the money made on bonds is, in fact, from the buying and selling of the risk of default. The trade in CDS (Credit Default Swaps) wouldn’t exist without it.

Of course if a corporation should act unwisely, go bankrupt and force losses on their bond holders – pick your example – Chrysler, AIG, GM, the S&L’s there’s an endless number – this is seen as a perfectly normal, if unfortunate.  But it is clear that there is a push to put a stop to nations being afforded the same right.

At the moment the major victory, which I mentioned above, is by the latest Supreme Court rulings in the US in favour of the Vulture funds against Argentina making it harder for any government ( I am thinking or Ireland in particular) to put the good of its people above the good of the bond holders.  The rulings make it now very likely that more and more bond holders will refuse to engage in any sort of voluntary agreement to restructure sovereign debts. The problem is, this route, the Vulture route, can take a long time and requires specialist lawyers. Not every bond holder has that expertise. They, the majority, need another quicker, easier route to getting their hands on national assets.

Here is one way I think they could do it. If I am right, and if this is a viable way, then they will have thought of it already and should be busy working out the legal fine print and preparing the politicians to agree to it.

In a nut-shell, I think nations will be urged to issue a new kind of sovereign bond which would be the equivalent of a corporate Covered Bond or, as they are sometimes known, a Pfandbrief. Don’t be put off by the jargon it’s quite simple. Should the borrower default or go bankrupt, a normal bond gives you a claim on the general pool of the borrowers’ remaining assets. But all the other bond holders have the same claim.  So you must all wait for the auditors to sort out what assets there are to be shared out and who gets how much back. Then you all form an orderly line with those holding the most senior bonds at the front and those with more junior bonds at the back. If the pool of  assets runs out before you get to the front of the line, then you go away empty handed. I’m simplifying but that is the general way it works. Except for one group of bond holders – those who have Covered Bonds or Pfandbreif, because those bonds not only have general claim on the pool of assets but have a unique claim, written in when the bond was issued, on assets that were ring-fenced as the specified collateral for those bonds ONLY. Those bonds have their value ‘covered’ by a specified group of assets. 

Now at the moment when a company goes bankrupt what we mean by ‘assets’ is everything: Cash, investments and any and all physical assets,  which means buildings, land mines, oil fields, and equipment, from machinery to paper-clips. However, nations are not considered as companies (YET). The 1% has encouraged the talk of UK Plc but it is not YET a legal reality. Which means when a nation defaults it does so because it says it does not have the cash (from financial holdings and tax flow) to pay the bond which is due for repayment. Till a few months ago no one had the right to claim for themselves a nation’s assets in payment of a debt. Nor had they any legal authority to force a nation to sell assets to get cash to pay a debt.

But over the years this presumption has been eroded. The privatization programmes of Thatcher were a major step in governments claiming the power to dispose of the assets of the people, as that government of the day saw fit. The recent rulings in favour of the Vulture funds have been another important step in giving the corporations  new rights – under US law only so far – to seize sovereign assets wherever they could. Which, in effect, means. if they could get their hands on them without the use of an army – such as seizing assets held in a third party bank or another country which would comply with the order. Thus a private custodial bank might agree to give the contents of a  sovereign nation’s accounts to a Vulture fund. Or a country in which, for example, Argentina had moored a state ship might agree to impound that ship till the Vultures could swing by and pick it up.

BUT a Covered Bond would make life so very much simpler for the bond holders. If a nation was induced to issue a Covered Bond then it could be written in to the agreement at the start, which national assets – a train system or oil and gas fields – were the specified and pledged as collateral for this particular bond. The government in charge when the default happened could then say to its electorate, “We’re terribly sorry but its right here in the small print – you – via your government agreed to forfeit these assets if you failed to pay. This is international law which we must obey.” And THAT last phrase is the key which opens the door to the future the 1% want.  A future were International Law is held up as the new supreme, and completely non-democratic arbiter of right and wrong. International law would be the new god. And like god would be above the whims and breezes of merely popular wants and desires. People already see the law as somehow above democracy, forgetting that democratic governments wrote the laws and have the power to unwrite them if the people so direct them. This last point is the one will be overlayed and suppressed. I will come back to this.

But back to Covered Bonds. It would be a simple matter for a compliant government – an ably advised one of course – to issue such bonds in the people’s name. Will nations be stupid enough to go for  it? Well the ‘nation’ might well object but that’s precisely what politicians are for. Elected politicians would be willing to do it today – except for the fact they know they would be thrown out of office immediately. So what is needed is a major media campaign complete with paid-for experts and pundits all saying how the way forward for nations who are presently unable to access the bond markets is for them to issue Covered Bonds. Get experts from Germany to talk about the long history and success of the German Pfandbrief. Have them talk about how banks that have issued such bonds are considered among the safest. Link together in the popular mind the issuing of Covered Bonds with the general idea of safety and prosperity. Never mind the one doesn’t cause the other. Don’t mention what enormous rights they would be giving the corporations nor what a huge part of their sovereignty they would have signed away. Don’t let these things be mentioned. Then move on to suggest that issuing such covered bonds would lead to greater investment even for nations that are not having trouble issuing bonds. As soon as you have made this link between issuing these kind of bonds and ‘greater inward investment’ the job is almost done. It is this link to attracting greater inward investment which is being used to sell the Trade Agreements, Bilateral Investment Treaties and the Investor State Dispute Settlement mechanism, saying that it is only those nations who agree to them, who will benefit by attracting more investment. It isn’t true, (there have been several studies the first in 2002 by the World bank concluding it isn’t true)  but as long as we keep saying it is, who will argue? And people will eventually come to think it must be a good idea.

In the Covered Bond future a hideous inversion will take place. Once upon a time bonds were issued so that a nation could build up a wealth of essential infrastructure such as hospitals and roads, and to develop natural resources for the benefit of the entire nation. In the Covered Bond future those resources and national treasures would be pledged for nothing more than raising more debt and would, after another financial crisis and the deluge of new bail-out demands it would bring, undoubtedly hand over their ownership to the bond holders. And it would all happen without a Vulture having to stir from its perch and where any murmur of discontent would be met with righteous sermons about the sanctity of international law.

5) From National Treasures to State Monopolies.

Of course it will not be quite that straight forward to prize a nation’s assets and wealth from its people’s ownership.  Other ideas will have to be changed as well. National Assets must be re-named as State Monopolies. Instead of talking about, for example, how efficient a national health system is, or what good care it provides per capita expenditure it must be referred to, darkly, as a State Monopoly and all the talk must be about how bad monopolies are. No attention must be paid, no reference ever allowed to studies by the WHO or this one by the Commonwealth Fund that have consistently found,

The United States health care system is the most expensive in the world, but…the U.S. fails to achieve better health outcomes than the other countries, and … is last or near last on dimensions of access, efficiency, and equity.

No mention of such studies must be made. Instead all talk must simply concentrate on how restrictive state monopolies must be and how they must limit ‘choice’ and allow inefficient and greedy public workers to burden everyone else.  And wouldn’t you know it, the effort is already under way. Here is a paper from the Fraser Institute in Canada calling state education a State Monopoly. The Fraser Institute is resolutely free-market and is funded by the likes of ExxonMobil and the Koch brothers.

The paper doesn’t claim, because it hasn’t any evidence to support any such claim, that the State school system educates badly or that for-profit schools are a better way to educate a nation. Instead it simply says how bad monopolies are. How they restrict choice.

Canadians rightly complain about protected industries – whether it’s dairy products, telecoms, banking, or transport – and the consequences in the form of less choice, poorer service, and/or higher prices….

The paper then begins to talk about education as if it were a ‘protected’ industry. Allowing it to elide the harm done by monopolies in the market, with free education.

 When government is the sole supplier of services, the options for consumers are extremely limited.

Of course in the case of the NHS in the UK where the government is the sole supplier and it is, therefore, a State Monopoly the result has, for several generations, been a health care system that is cheaper and better than the US free-market version in almost every single way.  You may hate the conclusion on ideological grounds but, in fact, all the actual evidence is on my side.

But evidence has never been the concern of the global overclass, has it?. Fear and greed is more their currency. And so the assets of every nation are to be denigrated along with those who work in them, as inefficient and staffed by greedy, lazy state-worker parasites bent on restricting everyone’s ‘choice’. If enough people can be taught to hate the teachers who teach their children and the doctors and nurses who care for their parents and if a general culture of hate-thy-neighbor can be engendered, then the Over-class will be significantly closer to asset stripping your nation – with your help. You might imagine an Orwellian slogan of “Give up ownership/Get more Choice!” Believe it at your peril.

This is speculation, of course, but papers like the Fraser institute’s make it not so much ‘groundless speculation’ but more ‘extrapolation from what already is’. There already is a firm intent to privatize education in those countries where state education is good, and a huge desire to privatize all the state health systems that DO WORK and DO deliver fantastic services, like the NHS in the UK, because they would be priceless assets to strip. And every nation has natural resources which, like the common land of centuries ago, the over-class would like to enclose using exactly the same argument they used to clear the Highlands and enclose the Common Lands of England – “Oh they’ll be so much more valuable and productive when accumulated in our private hands than if we leave them distributed among the unworthy commoners.

It warmed for them a few hundred years ago. They are hoping it will work for them again. We must stop them and not only do I belive we can, so do they.

Which is why discrediting democracy itself, above all else, must be the urgent task of the Over Class.

At the risk of your ire I am pausing again here. I hope that the argument so far has provided sufficient to disagree with, comment upon, refine and improve so that you will forgive me for holding back the last few sections.  It seemed to me better to get this much published, and give people a chance to comment rather than deliver it as one enormous lump. Anyway the last part will be finished soon and will follow shortly. Promise. 

This is the currency of power today. Fiat truth.

We are not allowed to have any secrets any more.  And yet those who insist they must know the truth about us, who spy upon us to extract our secrets, tell us in return, only lies.

It is a dangerous, corroding imbalance of power, because lies, like debts, compound.

Living the lie

We all know the famous Goebbels quote,

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it.

From Sadam’s weapons of mass destruction and missiles that could hit us in just 40 minutes of sexed up bullshit, to the stress tests that show us every bank is perfectly solvent and however many billions they launder they are never guilty and no one goes to gaol because they are too big to fail and too connected to even question.

The eye of providence looks out and approves of what is done – Annuit cœptis.

But who does the all seeing eye, that sits atop  the pyramid of power on the mighty dollar bill, work for now? Is it really you and me?  That is what we are told to believe. But is it true? I think there are too many secrets but few of them are yours and mine.

The private dealings of the ordinary citizen are considered suspect and must, we are told, be rooted out. The secrets and outright lies of the corporate and governmental worlds, however – they are confidential. They are protected – behind razor-wire threats of  legal action and closed door tribunals of hand picked experts.

A few weeks ago I sat and listened to the former leader of the Conservative party, now an elder statesman of British politics, Michael Howard, tell an audience that governments need to lie. He is a clever man. He quoted Goebbels and then gave this carefully chosen example.

Imagine, he said, that a Chancellor knew that he was going to have to devalue the currency. The evening before the appointed hour, he is asked by a journalist if he is going to devalue. If he tells the truth and says yes, there will be a run on the currency and great damage will be done. So he lies. “No”, he says, “I have absolutely no plans to devalue at all.” And then next morning he devalues as he had planned.

“Was this not”, Mr Howard asked, “the right thing, the only thing to do?” And all agreed it was. The unspoken lesson that everyone seemed to accept was stability is more important than the truth.

I find this a very frightening notion.

But Mr Howard presented his lie well. He went on to quote the next, less well known line from the Goebbels quote.

The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie.

And this, he said smiling at us, is what protects you. The chancellor’s lie only needed to last a few hours. The nation only lived inside his lie overnight.

But now think of the lies we have been told since 2008. Our banking system and the  banks in it, we were told, were basically sound just suffering from a shortage of liquidity. And yet, in reality, it was not a problem of  liquidity, it was insolvency.

The liquidity lie had to be rolled over and the interest on it, paid. So another lie, that  bank assets were not worthless just ‘impaired’, had to be told and maintained. And to do that the truth had to be hidden, off balance sheet, in mark to model and offshore.

Our governments have spent trillions maintaining their lies and have forced us to live those lies for five years now. But there are costs. Living a lie is morally and politically corrosive, not to mention expensive.  Just this week, as reported in the FT, the Italian Treasury ‘uncovered’ a nest of lies. It appears that the Italian government, in the run up to joining the euro,  paid at least one of the big banks to help it hide the true extent of its debts by agreeing  derivative swaps. Greece used similar swaps to massage its debts. The now infamous Titlos agreement with Goldman Sachs being the best known.

The Italian agreements – there were several amounting to around €36 billion in value – would have been known to Mario Draghi who was at the time of some of the agreements at least  (1998-9) Secretary of the Treasury. Shortly after this (2002) he left the government and joined Goldman.

It now turns out the terms of the agreements were such that the Italian tax payer could face billions in losses. Of course those who will be forced to pay, were never consulted, not even told of the agreements. They were …confidential of course. Commercially sensitive and politically secret – so often bedfellows aren’t they? Kept secret from those who would be required to pay the bill when it came due.

Our leaders, our liars, haven’t bothered to protect us from the consequences of the lies at all. Too expensive. So austerity, disparity and stagnation are everywhere around us. Forced on us by those who suffer none of them, insulated as they are by wealth and power and privilege. Consequences are for little people, not their Betters.

Our ‘Betters’ have found Goebbels was wrong. You don’t have to protect the people from the consequences of the lies you tell them, as long as you can blame those consequences on someone else. On unforeseen global economic forces, on conniving foreigners who devalue their currency, or terrorists or whistleblowers. Or even the people themselves for taking on debts they couldn’t afford or on ‘necessity’ and ‘precedent’ – the bond holders cannot be made to pay – it goes against international precedent.

We, the people, need to strike back at the secret deals done between the elites of  the political and financial revolving door, and make it clear that we will not pay for anything about which we were not told.

Once the cry was, “No taxation without representation”. Today the cry must be, “No debt without consultation.”

Suppressing the Truth

What Mr Howard did not quote is the next line from Goebbels.

It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”

But again Goebbels has been superceded. Repression is so last century. Why repress when you can simply drown it out. All it takes is for the media outlets to be owned by a few powerful and like- minded friends. A few media moguls and corporate giants, whose plastic pundits raise their voices while the dolly bird presenters flash their thighs. It’s all so full throttle and frantic, and charged with desire and greed.

Anyone who disagrees is a conspiracy theorist. Anyone who breaks ranks is a whistleblower and whistleblowers are domestic terrorists, dysfunctional loners with personality problems and axes to grind.

When the truth is vilified, hunted, gagged and goaled, then the State has chosen to go to war with the nation.

We are at war.

We’ve all heard of deposit insurance, but does it mean what we all thought it meant – that up to a given sum we would not lose any money if our bank collapsed? And by the way – who pays the bill?

The simple idea we have all believed in was that up to a specified amount our money was guaranteed by a government  deposit insurance scheme. Most countries have one. As long as your bank is in it you’re covered. Or at least you were till this week.

Before we get to the rapidly evolving changes lets just go over the details of what used to be the case.

It used to be that below the guarentee limit your money was safe. It was only any amount above the guarantee, that you could lose in a restructuring. When a bank went under the normal bankruptcy rules swung into action (I’m leaving aside the TBTF gorilla in the room. Let’s not poke him just yet).TBTF aside – the collapsed banks’ assets would collected in into a pile and all the bank’s creditors (those who bought its debt, lent it money, put their money into it) would be put on a list in order of seniority, with share holders at the bottom, unsecured and Junior bond holders next with Senior insured bond holders at the top. Depositors were always ranked up there with Senior bond holders. Those at top would get most if not all of their money back and not take a loss, those at the bottom would lose everything.

As a depositor  you could still lose whatever money you had in the bank that was above the threshold but you might not. Your chances would be in line with the Senior bond holders. But as this bank debt debacle has mutated over the past 5 years so the old ranking of creditors has mutated with it. First the bail out funds like the EFSF and the ECB itself have made themeslves super senior. They have put themselves above Senior bond holders meaning in the event of a bank collape the ECB and EFSF, if they had been lending the bank money in return for collateral – would be first in line to get paid.

The private bond holders and the banks struck back at this idea a couple of years ago by ramping up the use of Covered Bonds. Covered bonds are  way of trying to put private bond holders back above the ECB and EFSF. They are sold to investors on the claim that they are not just covered by a senior claim on the general assets of the bank – which would make them the same as traditional Senior bond holders – but that the Covered Bonds were also backed by a specially ‘ring-fenced’ set of assets of their own. So in a collapse the Covered Bond holders would have those ring-fenced assets withheld specially for them from the general pool of assets everyone else was queuing up for.

It remains to be seen if the ECB et al would recognize this arrangement as being senior even to them. It also is not  clear to me in what I have read – if even the assets in the ‘ring-fence’ might not be pledged to more than one covered bond and possible even be hypothecated. None of this has, so far as I know, actually been tested in a case of competing claims at bankruptcy.

Be all that as it may – what is clear is that any amount of money you had above the guaranteed threshold would always have been at risk, BUT at the top of the pecking order alongside Senior Bond holders.

It is this long established order of seniority that has been torn up by what the EU tried to force upon Cyprus.  As the financial publication Euromoney comments in an article on events in Cyprus,

…the complacent bailing in of the man-in-the street was the casual abandonment of the creditor hierarchy.

This is why the finanical markets were nearly as shocked as the man in the street. This established hierachy is the entire basis of all the arguments for saying Senior Bond holders could not be made to take losses in a bank collapse. They had to be protected. Now I always dissagreed with this and still do. I feel very strongly that depositors should morally come above everyone, and the senior bond holders should be in line like everyone else, not held as sacrosanct. Basically my view is we should protect the 99% ordinary depositors NOT the 1% bondholders.

But here we are now with that order of seniority having been torn up by the politicians. How now to argue for the Senior bond holders not to be touched? Suddenly there is no argument from principle. The principle was flushed when the Troika backed the Cypriot plan to seize money from ALL depositors.  They can back-track and mumble about amendments to the plan all they like – the principle has been torn up.

So what now? What happens in this new disorder?

Well it turns out other countries have been preparing to enforce this same – ‘force losses on all depositors’ – idea. New Zealand, as reported in an article by interest.co.nz  has been working on what it calls its new Open Bank Resolution Policy (OBR). If put in place – and that is the NZ government’s intention,

The implementation of OBR would see all unsecured liabilities that rank equally among themselves, including deposits, having a portion frozen (My emphasis)

In response, as picked up over at Jesse’s cafe Americain,  NZ Central bank has argued that really nothing has changed because,

…depositors have always needed to understand that deposits are not guaranteed… [OBR]…does not change the fact that depositors and other creditor funds are at risk…

This is at best highly disingenuous. Actually everything has changed. Under deposit guarantee depositors only lose ABOVE a threshold amount. Under OBR they ALL LOSE a given amount straight away.

As the co-leader of NZ Green party Russel Norman pointed out,

… if a bank fails under OBR, all depositors will have their savings reduced overnight to help fund the bank’s bail out.

So it’s not just Cyprus. New Zealand has been working on the same idea. What about European countries?

ZeroHedge reported yesterday quoting from a report in El Pais, that Spain too has been working to implement the same idea.

 Spain, it would appear, has changed constitutional rules to enable a so-called ‘moderate’ levy on deposits

UPDATE – and now, as picked up by The Slog, we have Joerg Kraemer, chief economist of the German Commerzbank sugesting Italy could/should seize 15% of Italian deposits.

And what about the UK ? Surely those fine bowler hatted gents of Threadneedle Street and the Right Honourable fellows over at Westminster – who stand for all that is good and dependable and NOT FOREIGN or FRENCH, wouldn’t ever think of such an outrage.

Well sadly…

Back in December 2012 the FDIC and he BoE published a joint paper outlining their new approach for how to resolve any future collapse of one of the Too-Big-To-Fail banks, called  “Resolving Globally Active, Systemically Important, Financial Institutions” . The paper is the blue print for how collapses, at what it calls G-SIFIs  (Globally Systemically Important Financial Institutions) – get used to this term it will figure largely in your life in future whether you want it to or not- how they will be dealt with in future. I shall write more about this paper and the regime it outlines in future. It is not a pretty picture at all. But for now we need only look at section 34. which says,

34 The U.K. has also given consideration to the recapitalization process in a scenario in which a G-SIFI’s liabilities do not include much debt issuance at the holding company or parent bank level but instead comprise insured retail deposits held in the operating subsidiaries. Under such a scenario, deposit guarantee schemes may be required to contribute to the recapitalization of the firm, as they may do under the Banking Act in the use of other resolution tools. The proposed RRD also permits such an approach because it allows deposit guarantee scheme funds to be used to support the use of resolution tools, including bail-in, provided that the amount contributed does not exceed what the deposit guarantee scheme would have as a claimant in liquidation if it had made a payout to the insured depositors. (My emphasis)

As usual the official language is there to obscure rather than enlighten. But what it says is that the money that the Deposit scheme contains, instead of going to you, could now be used (read would be used) to bail out to the bank in order to prop it up. In other words the new system makes the Deposit Guarantee fund available for use as bail out money.

The rationale is that if using your deposit guarantee fund for propping up the bank ‘saves’ the bank from collapse then you wouldn’t need that deposit guarantee would you? This overlooks the one lesson we have all learned from the bank bail outs of the last 5 years, that the bail outs are never, ever, ever, a one off. The first one fails to save the bank as does the second and third and and and.

So if I have read the above correctly – the new system raids the Deposit Protection scheme, gives it to the bank instead of you  and when that fails to save the bank…then what? The bank fails again and there is no money left in the Deposit Guarantee scheme.

And then? My guess is the government would say how they will replenish the fund – because they have your best interests at heart after all – BUT given ‘the exceptional circumstances’ and the ‘unforeseen severity of events’, no doubt forced upon them by rotten foreigners – the scheme cannot now be as generous as they would have liked it to be and the amount of the guaranntee has to be lower.

So, so sorry.

And that is what I think is being planned in the UK and USA.

Will the UK and USA also go for the automatic seizure of money from accounts? My guess is they have been quietly planning on it but will now think twice about admitting to it. Preferring to keep it quiet until the next collapse when ‘circumstances call for desperate measures’ etc etc.

The reality is the banks are still bust – even the ones making huge profits – and when – not if – when the next bubble bursts and one bank starts to bring down another – they will all come for your money and we will all be collectively punished in order to make sure the wealthy and the powerful stay that way.

At the behest and on the authority of Prime Minister Samaras and President Papoulias, an amendment to Greek law was drawn up last week. There was no debate in parliament, the vote is still to be purchased. But unless this amendment is challenged or changed, the change it will bring in will alter the future of Greece and its people every bit as much as the day Greece joined the Euro, perhaps even as much as the day Democracy was re-instated after the long rule of the Generals. Only this change will be a giant step away from Democracy and towards subservience to an unelected elite.

You can read the law in its original here. Here is a translation of the key part.

«The Beneficiary Member State, the Bank of Greece and the Hellenic Financial Stability Fund each hereby irrevocably and unconditionally waives all immunity to which it is or may become entitled, in respect of itself or its assets, from legal proceedings in relation to this Amendment Agreement, including, without limitation, immunity from suit, judgment or other order, from attachment, arrest or injunction prior to judgment, and from execution and enforcement against its assets to the extent not prohibited by mandatory law».

The law says, should any future Greek government try to default in any way on its debts – by setting up a debt commission or by any other means, even one accepted by international law and precedent, then Greece chooses to relinquish all claims on the assets of the Greek people and the nation and equally relinquishes all legal protections from its creditors/bond holders. In other words, if a future Greek government tries to default, Mr Samaras and Mr Papoulias have guaranteed that the Greek people will forfeit and lose any and all rights to their nation’s assets including its national companies and natural resources and the law will not protect them. All those assets will be open to seizure by Greece’s bond holders. The vulture funds, vulturecrats and all the bond holders have been handed a loaded gun and a license to loot.

No nation has ever done this. The question is why are Greek politicians trying to do it and why now?

For the last two years two questions have echoed round and round Europe and occupied the elite who rule/own it – how to stop Greece defaulting and how to recapitalize its banks – so that neither can pull down the things Europe really cares about – Germany’s and Frances’s banks?

I believe passing the above law is an important part of the answer to both those questions. In fact, if passed in to law, it will, I think all but complete a Troika formulated policy begun with the much talked about but little understood, partial Greek default and bond swap, that was the first station of Greece’s cross. What is that policy?

Stop Greece from Defaulting.

There has been and continues to be much talk about ‘helping Greece not to default’. In actual fact there is very little real ‘help’ at least not for the Greek people. The intent of Troika’s policy for Greece has been far more directly to simply ‘stop’ Greece defaulting no matter what harm it does to Greece or its people. The policy has actually been to crucify Greece if necessary, and to deny her, no matter what, the release of default.

I believe this new proposed law is intended to put beyond all reach the release of default.

But first lets clear this law is not a one off. It is a continuation of a policy that the bond swap began. The bond swap dealt with only one part of Greek debt closing off only one potentially open door to default. The present proposed law closes off all the other exits in one stroke.

So let’s start by clearing away some of the misdirection that the mainstream media has so helpfully piled in our way concerning the debt swap that Greece undertook in March 2012 and about which so much has been written. First the debt being swapped was purely Sovereign debt that was held privately. I. E. by banks. So it did not cover sovereign debt held by other nations or central banks, nor any private debt, such as that issued by Greece’s banks. Only sovereign debt held by banks and other financial institutions.

Needless to say the debt/bond holders of those institutions have used every column inch they could buy or influence to tell the approved story of how they, the ‘wealth-producers’ of the world, as they like to style themselves, have been robbed by a nation of feckless, work-shy,’socialistic’, tax-avoiding, recidivist crooks. What actually happened is nearly the opposite.

Certainly, Greece did default/restructure this debt. So on the face of it it cannot be denied that the bond holders took a loss.  But as I have pointed out before, private companies default all the time. Default is not a crime against business, it is part of it. Neither restructuring debt nor defaulting it is  a crime.  Let’s look at the case of Chrysler – again. The management simply did the mathematics and knew that unless they could reduce their burden of debts they would not be able to get out from underneath them in order to make a profit going forward. Given that situation the management (Who by the way were the culpable ones for piling up that much debt) simply said – if we do not reduce this debt then the business is dead. Better to default some of our debt and allow a business that can make money to emerge.

That is all default is. A sensible way out of a disastrous situation.

Now when Chrysler defaulted they forced a settlement on their creditors of 29 cents on the dollar. According to the BIS (Bank for International Settlements)

In February 2012, the Greek government launched an offer to exchange €206 billion of bonds held by private sector investors for new bonds with a face value of about €100 billion.

So Greece offered very nearly 50 cents ‘on the dollar’. To me that’s a bail out in all but name because it is above what the bond holders would have got had they been selling in the open market. The Greek government made no attempt to get the best deal for their people, but instead offered the open hand of generosity for their banker friends while beating down on ordinary Greeks with a closed fist.

But the settlement with the bond holders was never simply about money ‘now’, it was perhaps even more about altering the future. This was a ‘restructuring’ with one purpose – to make future default or restructuring impossible. The bond holders got paid 15% of the face value of their bonds in cash up front. The important point, however, is that the rest of their 50 cents on the dollar came in the form of new bonds issued to replace the old. The important point, perhaps the main point of the exercise was that the old bonds, which were ‘Greek Law’ bonds were replaced by ‘English Law’ bonds. The difference between Greek law and English law bonds is important and valuable to those holding them.

In Greek law bonds there can be are what are called Collective Action Clauses which allow the government to impose on the bond holders an agreement which is binding on them all so long as a majority votes in favour. Thus in a restructuring the government can dictate terms and as long as a majority of the bond holders agree, however reluctantly, the rest have no choice but to acquiesce. This is what Chrysler did. This is exactly what the Greek government did to debt it had issued under Greek Law. In English law these clauses do not appear. Which means that individual bond holders, of debt issued under English law, can hold out against imposed restructurings and refuse to settle. The effect is to make it very difficult for a government to force a settlement on bond holders. Hold-outs can always block it and force a higher price.

What the Greek government did, with the blessing of the Troika, was use the collective settlement not only to offer the holders more than they would have got in the market – which mean as far as the markets were concerned that the banks were better off after the default than before – but to replace all the Greek law bonds which allow restructuring with new English law bonds that make it impossible. The deal made this restructuring the last Greece would be able to do.

So while the mainstream press obediently peddled the ‘poor bondholders being forced to accept default’ story – the real story was that thanks to English law bonds for the old Greek law ones, no future Greek government that was not convinced of the merits of destroying Greece for the sake of Europe’s big banks, or wanted to re-negotiate – like a possible left wing, Syriza government –  no such government, no matter what it promised those who voted for it, could ever again impose a collective default settlement upon the new debts.

The bond settlement was not just about giving to the bond holders it was about taking away from the citizens of Greece. Taking away from them their ability to chose certain futures.

Foreclosing the future 

Now let’s look forward to what might happen if the present coalition were to lose the next election and Syriza were to gain power. The Syriza leader, Mr Alexis Tsipras, has already called for a debt commission, and in any election that call or something similar, will be a central promise of Syriza to the Greek electorate.

But now consider what the chances would be of making good on any such promise. If Syriza were to take exception to the generous deal given to the bond holders and if they tried to change that deal in any way, it would be a technical default and the English law clauses would prevent any new deal being forced on the bond holders. The clause would stop any attempt by Syriza to reduce Greek debt by that route. That avenue was closed when the present government signed its generous restructuring deal.

So much of the ‘poor bond holders’ story. But the bond story only dealt with one part of Greece’s debt. It left untouched the part of Greece’s Soveriegn debt held by governments, central banks like the ECB and Fed, and by other international funders such as the IMF or the various European bail-out funds like the EFSF etc., and did nothing to ‘save’ Greece’s banks from the mountain of bad private debts they still held or which they had pledged as collateral to the ECB. These debts are what new law is for.

The New Law.

On the surface the new law pertains only to the debts of the Greek state and its institutions. And on their debts the proposed new law is rather clear. It says, should any new future Greek government, no matter the mandate given to them in an election, try to default on any of Greece’s remaining sovereign debt, now held mainly held by other governments, central banks and international financial bodies, then the Greek state and the government of the day would have no protection in law against suits brought against them nor even against injunctions served to restrain their assets prior to an actual judgement. This means a Greek government would not even be able to fight such a case because while they were trying to fight, all their sovereign assets would already be frozen.

IF a Greek government tried to default not only would it not be able to force a settlement on its English law bond holders, but nations and central banks to whom it owed money would simply be able to claim and then seize Greek national assets. They could start with those already held by them, such as Greece’s gold held abroad, but also claim ownership of any other asset such as Greece’s infrastructure of roads, rail, power, water, oil and lands.

In one fell swoop the new law would radically alter the situation of those institutions, such as the ECB, who are sitting on billions of Greek government bonds pledged as collateral by Greek banks. Up till now a default would have left the ECB, like everyone else, holding worthless paper and heading for the nearest court to file suit in the hope of eventually getting a judgement in their favour. Whose court and what judgement  no one has been clear about. In short the EBC and everyone else were holding debt that was not secured against any specific claim against Greece’s assets. They were, in effect, unsecured bond holders. The ECB would not like to see it that way but I think that is how it is.

The new law changes this. And I think the European poweres are well aware of this and it is why they insisted on this law being written. For let us be clear this law was created by the Troika for the precise purpose I have outlined. The law, or the idea of it, was there in the 400 pages of the memorandum that was drawn up to govern the Greek bail out back in February. The eventual adoption of the law, is there in the fine print as one of the preconditions for the bail out to be fully released. And now the Greek quislings have done their master’s bidding.

Because if the law is adopted, then suddenly, in a default, every one of the Troika institutions could point to Greek law and say, by your own sovereign law the Greek bonds/debt we are holding are secured against your national assets. Any default and the ECB could claim whatever it wanted to cover the value of the bonds it held. My guess is the ECB might fancy Greece’s financial sector, thus making the running of Greece’s economy from Frankfurt much easier than it is now.

Of course a Greek government would not have to roll over and agree. A Greek government could still alter the law and say we are still ‘the will of the people’ and we will not surrender any assets no matter what your claim. But in return Greece’s gold would be seized as would any other Greek sovereign assets held abroad. Greece would also find suits imposed on any banks that tried to do business with them. The suits would all be based on the new, proposed law.

Taken together the earlier bond settlement, replacing Greek law bonds with English law bonds, plus the as yet to be voted upon new law would make it almost impossible for an any future Greek government, to ever again default or restructure sovereign debt. Together they are, I think, how the Troika plans to stop, prevent, and outlaw Greek people determining their own future..

This is how the Troika intends to crucify Greece.

But as if this wasn’t enough I want to suggest one more deeply unpleasant thought that came to me when I was thinking about the purpose of this new law. This is speculation because it is based upon an interpretation of the law and I am not a lawyer. But I want to put it to you because if I am in any way correct it makes the actions of the leaders like Mr Samaras an even more horrid betrayal.

Private debts in Private Greek Banks.

What I have not yet looked at is the immense pile of bad private debts held by the insolvent Greek banks.  This would seem to be outside the scope of the proposed law. And this is a problem, because if those banks collapsed, the ripples of the event could spread and to where no one is quite sure: Commerzbank, Deutsche Bank, Unicredit, The Bundesbank itself, Credit Agricole, Soc. Gen. No one quite knows. No one wants to find out. And what of the elite of Greece? The elite families of Greece, and there are only a few, who own its banks and its oil companies, and whose sons have provided Greece with her Generals as well as her Prime Ministers  would face ruin if the private debts in their banks were to implode.

Of course this should be a private affair and nothing to do with the government and its debts. But, since 2007 we all know that such private debts have been made government business. That is the new world we have been brought to. Greece’s banks will require further assistance. Everyone is clear about that . So what if a future government decided, while it might not be able to restructure its sovereign debt, it could at least refuse to take on any more debt for the sake of ‘saving’ the private banks? A more left wing government could still allow banks to default. It could clear their debts, force their bond holders, whoever they were, to suffer the losses, and then nationalize whatever assets were left, and at least Greece would have a clean banking sector. Good for Greece. Not so good for the families whose wealth and power would have just burned down.

But now think what this new law would have to say about that. On the surface nothing you might think. So might Syriza. Private banks defaulting on private debts . Nothing the government could be sued for, even under the new law,

Sadly I think the new law is there to make sure the government could be sued even for allowing private banks to default on their private debts. How?

Think of how a bank, a systemically important bank, one large enough to cause a domino effect, has to be wound up. You cannot simply let it fall apart. That would be what is known as a disorderly insolvency. What has to happen, is an orderly insolvency that ensures the bank still fulfills its socially necessary functions as a bank for ordinary people and other businesses.

In an orderly insolvency, like Chrysler’s. or Northern rock’s,  auditors must be appointed whose job it is to sort out the parts that are still viable from those that are not. The viable ones are put in one business and allowed to emerge from bankruptcy while the dead parts are put in another financial entity which is overseen by trustees while its affairs are wound down.  For most companies this happens as an entirely private matter. A company like Chrysler simply stops making cars for a while until the legal and financial sums are done. But for banks it is different. People have to have access to their money. And for big banks their operations need to continue for the sake of lots of other businesses which rely on them. So in the case of banks the government usually steps in. In the case of Northern Rock or Bradford and Bingley in the UK or the Caja in Spain or hundreds of banks in America, the government takes over the failed bank. It becomes the temporary owner and the bank’s debts appear on the government accounts. AND THERE is the key.

For as soon as a bank failed and the Greek government stepped in, as it would have to, to make sure the default was done in the orderly fashion that would protect ordinary people and the wider economy, then the bank and its debts would become sovereign. And as soon as that happened I think any sharp lawyer, expert in corporate and international law, would be able to argue that the default was ’caused by’ or at least ‘overseen and controlled by’ the government and, as such, was a sovereign default.

If the government chose not to ‘save’ the bank and its debts but instead allowed the bank to default, then the new law would empower the banks former owners and its creditors to seize sovereign assets.

It might seem incredible, and it surely is, but if I have read the law properly I think there is a very good chance it would also be the case. Just think of the way the law allows Vulture funds to sue nations even for losses on loans the Vulture fund never had any interest in until it bought them up specifically so it could sue. Tell me my scenario is impossible.

If think there is a horrible chance that the proposed law would mean that any future Greek government would have no choice but to keep bailing out the private banks. It would makes the Greek private banks and those whose wealth and power is tied to them, invulnerable. They could not be allowed to default. the proposed new law, combined with the ‘English law’ bonds would prevents any future government from being able to do anything at all to change the debt burden of the Greek people.

This law, if passed, and I think it will, would make the wealth of the 1%, untouchable even in default. The law would says either they are bailed out or they have the right to take whatever assets they wish in lieu.  The new law, could, if I am correct, be used to recapitalize a defaulting bank by simply plundering the assets of the nation.

If this speculation, and this is all it is, is correct in any way, then one of the elite, Mr Samaras, framed this law knowing it would protect his fortune and power and that of his family and his friends and their families. A law by the elite for the elite. And one that would spell the end of any meaningful democracy in Greece.

It also means this. If the Greek people vote for Syriza and the promise of reducing their burden of debt and austerity, this law and the Bond changes will ensure those promises are all broken. If that happens the voters would turn against those who promised and failed. The Left will be seen as worse liars and rogues even than those they replaced. Many Greeks might then swing violently from left to right, in to the arms of far right nationalists.

And that would be the perfect excuse for suspending democracy and bringing in a ‘technocratic’ government, a dictatorship by another name, perhaps of outsiders, backed by the military if necessary. A bankers paradise. A paradise of the elites. Vote left, swing right. The future of Europe.

This law is the end game. It must be stopped. And it can be. The Greek parliament can, and in my opinion must, vote it down decisively. If not then any incoming government seeking to turn away from enforced austerity, examine the nations debts, to reject that which was found to be odious and to restructure the rest, would find the steel jaws of a carefully constructed trap snapping closed upon them. At which point the only option would be something very close to revolution.

But it would be that or and end to democracy and economic crucifixion.

Why should CDS costs shoot up yesterday? Well yesterday was, as I noted in the last post,  the day the European Commission was busy talking about how, in future, Bond holders might be expected to share some of the losses in any default or insolvency.  No sooner has the suggestion been made that bond holders might not be sacrosanct and might have to share in the actual fate and loss of the banks from whose debts they have been drawing a profit and suddenly the cost of insuring those debts shoots up.  And to add to the bond holders shock and outrage,  this morning in an editorial the FT itself was arguing for unmasking the false religion of holding Senior bond holders as graven gods and making them pay too.

Makes you wonder if the bond holders knew all along that the banks were not as sound as they claimed but had hitherto not cared because they were confident that they were never going to share in any debacle and could therefore enjoy buying up  bonds and reaping the profits from them risk free.  Risk free until yesterday that is.

Overnight the banks which had seemed imperturbable, banks which the bond market and CDS traders seemed totally confident of, are all of a sudden being called in to question.

All last year I muttered darkly about BBVA, Santander and Commerzbank and looked foolish for doing so. I and others felt all could not be as well with them as they markets and bond buyers seemed to indicate they were.  Despite their share prices holding up I and others were convinced these banks had to be sitting on large as yet undeclared losses.  The Spanish banks from still unmarked losses of about 85 billion euros according to Moodys, on the Spanish property bubble and stupid loans to now bankrupt developers and at Commerzbank, exposure to bad loans in the East and possibly lots of American CDOs.  Commerzbank has been in trouble so many times it should have an ASBO (For non Brits an ASBO is an Anti Social Behaviour Order – a kind of restraining order on persistent offenders)

Of course what has really had new doubt cast upon it, is not the banks directly, but the profitability of buying their debt. Until now the bond holders were supremely confident of being untouchable and so the bank’s debt and insuring that debt was stable. Because the debt was stable so was the share price.  Now the entire  confidence trick has been shaken. And suddenly there they are, the three banks whose health seemed so inexplicable, suddenly having their CDS costs pop out.

It tells me that there were indeed fundamental reasons for doubting the soundness of those banks but that as long as it was felt that the Bond holders were going to be absolutely protected by their home nations then no one worried about those fundamental problems.  Such problems it seemed to have been agreed were destined to be the tax payers problem.

But as soon as it is even hinted that those problems might cost the bond holders as well, the true state of concern over Europe’s big banks starts to surface.  So far Santander, BBVA and Commerzbank.  I wonder how long it will take before UniCredit joins them?